By Alfred Branch, Jr.
If it ends its nearly 10-year relationship with rival Ticketmaster, Live Nation could see an immediate windfall of at least $80 million in annual revenue, according to one analyst who covers the company.
David Kestenbaum, director of equity research for the investment bank Morgan Joseph, estimates that Live Nation generated between $130 million and $150 million in revenue for Ticketmaster in 2006, as Ticketmaster’s largest client. The current contract between the two expires at the end of 2008, and the lion share of that revenue would end up with Live Nation if the agreement dissolved.
“This is about better economics,” Kestenbaum said about the appearance that Live Nation is considering not renewing the deal. “If they split from Ticketmaster, it would allow Live Nation to make more money and get closer to its customers.” . . .
Live Nation could also boost its earnings before interest, taxes, depreciation and amortization (EBITDA) by as much as $30 million. “In addition, we believe the move could also allow Live Nation to lower the various miscellaneous fees that fans are charged, which could ultimately bring down ticket prices and thus drive additional attendance at Live Nation shows,” Kestenbaum wrote to investors, and gave the company a “buy” rating.
With more than 15 months before the current deal expires, the two sides could decide to resume negotiations, but expect Live Nation to try to improve its stake in the arrangement.
Neither Live Nation nor Ticketmaster is discussing the deal publicly, but general consensus of the investment community seems to side with Live Nation holding the cards. On Thursday when news broke of Ticketmaster shutting down negotiations, shares of Ticketmaster’s parent company IAC/InterActiveCorp closed down more than 1 percent to $27.19, while Live Nation’s stock jumped more than 4.5 percent to close at $21.16. At close on Friday, however, IAC, which trades under the symbol IACI, rallied to close up 3.4 percent to $28.11. Live Nation’s share price rose .5 percent to close at $21.26 on Friday. It trades under the symbol LYV.
Live Nation has successfully grown its brand in 2007 and aggressively sought out ways to provide fans with the products and services they seem to want. Whether it was distributing more than 400,000 free tickets to Ozzfest, or hooking up with Papa John’s in a cross marketing deal, or developing Internet “widgets” to sell tickets on people websites, Live Nation has increasingly flexed its muscles in the ticketing and entertainment industry.
“Should Live Nation in fact decide to do business with an alternate ticketing provider or do it themselves, it would inevitably create more choice for live event fans in a market inordinately dominated by Ticketmaster,” said Chris Tsakalakis, president of StubHub!
Live Nation would have to build up its primary ticketing operation if it splits from Ticketmaster, but Kestenbaum said it only needs to be good enough to service its own venues, not necessarily rival the dominate machine that Ticketmaster has created.
“Only time will tell how this move could ultimately affect the industry,” said Andrew Zucker, Executive Vice President of Business Development for Admit One. “Our industry is changing so rapidly that today, anything could happen.”